engleski

Housing Markets in CEE nad Baltic Countries: Prices, Affordabilities and Their Determinants

This paper studies the house price developments in the following ex-communist economies: Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia. The first part of the paper is dedicated to detecting and explaining the house prices and affordability trends in the region. For that purpose the comparative analysis of housing prices and affordability on the national and capital city level is conducted. This analysis demonstrates that increasing income and rapid fall of housing credit interest rates were sufficient up to a point to offset falling housing affordability taking place in the region due to strong housing price appreciation. After the common price and affordability trends are determined, the paper develops a long-run model of housing prices movements in Croatia in order to detect, on the case of one ex-communist country, the forces driving the housing price appreciation. The model is developed by applying Johansen cointegration method where seven variables controlling supply, domestic and foreign demand are used. Moreover, since more than one cointegration vector was found, cointegration space needed to be restricted in order to obtain long-run elasticities and adjustment parameters. The results show that greater availability of housing credit, a consequence of rapid housing finance development enhancing the housing demand together with relative inelasticity of housing supply are the major reasons for the rising housing prices. Moreover, foreign demand is also found to be significant, but its actual effect on housing price is quite limited. Given the rising worries of policymakers in the region about the misalignment of housing prices from the fundamentals, this paper provides the evidence that conventional fundamental like income, interest rates and housing supply are to some extent reflected in housing prices movements, but transition-specific factor - improvement of housing finance - plays the biggest role in determining housing price.

house prices; affordability; transition; cointegration

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